Roses for greetings and Food for thought

Founded by SRK (Sai Ramkrishna Karuturi) in the year 1994, Karuturi Global has matured into a leading producer of cut roses and has aggressive expansion plans in the area of production of premium cereals to covert itself into a Complete Agriculture production company.

About Karuturi’s Business

1. Company grows roses on an area of 239 hectares and has a capacity to produce 555 million Rose stems annually. It has operations in India, Kenya and Ethiopia which are low cost production bases. US, Europe and Japan are the key markets served by the company. Europe is the largest consumer for Roses and the company has 9% share in this market.

2. The game changer proposition however is company’s entry into cultivation of premium cereals, Edible oils and processed foods. Karuturi has acquired 3.11 Lac Hectares of land parcel on lease in Ethiopia for this purpose.

3. Out of above 3.11 Lac hectares, company has already started operations on 11 K hectares for maize and Rice cultivation. On the 3 Lac hectares, the company proposes to grow cereals and Oil Palm. The company plans to cover a major area of the above in cultivation in the next two years.

4. The agriculture business will primarily cater to the COMESA (Common market for Eastern and Southern Africa) which has a population base of 400 Million. Hence there is a ample market for company’s produce.

Positives

1. With ever increasing population and reducing area of cultivation due to conversion of agriculture land for habitation, there is a concern of acute food shortage in the coming future. Hence Agriculture as a business class would have excellent growth prospects. Karuturi has chosen a location which provides access to large area for cultivation at reasonable cost of access to land as well as low cost of production. Another added advantage is proximity to the consumer base.

2. The floriculture business continue to grow and is a good margin business. With recessionary trends still seen in US and European countries, Roses may provide alternatives to costly gifts. This may provide resistant to recessionary pressures of these economies.

3. The foray into agriculture would provide a significant boost to the Revenue and profits of the company and has the potential to make it a major player in this segment in next couple of years.

Major concern Areas

1. The company has embarked upon a rapid expansion plan and as such has execution risks associated with it. Any delay in execution or not being able to cultivate two crops in a year as per the plan may reduce the attractiveness of this expansion.

2. This expansion would require major capital expenditure and hence the company would need to demonstrate highly efficient use of funds.

3. Promoter stake in the company is comparatively lower at 27% and may come further down as the company would require to infuse funds for its expansion program. Lower stake of promoter in a fast expanding business may not be a looked upon as a good indicator.

The investment in Karuturi can turn out to be multi-bagger if the company is able to effectively execute its foray into the Agri business. The investment in this company may be suitable for those investors who have high risk apatite and are willing to hold on to the stock for a couple of years to reap the benefits as the company converts itself to a agriculture powerhouse. At the same time it is important for investors to monitor the developments in the stocks and take suitable actions to switch out in case of any major failure in the company’s growth plans.

Disclosure & Disclaimer : I have a small position in this stock and I can buy further or exit my position, fully or partly, based on my investment needs and may not communicate the same on this blog. This article is my opinion on the stock and should not be construed as a Buy or sell recommendation.

Dressed up for the Show

Cantabil has eneterd the capital markets with an offering of shares in the price band of Rs.127-135 to garner 105 crores for its expansion plans.

Positives

1. Cantabil has a network of 411 exclusive retail outlets spread across India of which 141 outlets are exclusively for its brand “La Fanso” an rest for “Cantabil” brand.

2. It offers complete range of formal wear, party wear and casual wear for Men, Women and Kids .

Concerns

1. Cantabil depends on third parties for a considerable portion of sales as well as manufacturing of its products. It makes it vulnerable to performance issues.

2. Centralization of manufacturing facilities at Delhi exposes company to issues related to local unrest or disturbances.

3. The apparel segment has many established players and hence the company has intense competition on this front to keep its brand value flying high. Some of the competitors include Raymonds, Gini and Jony, Provogue,Koutons and Arvind brands.

Financials

Cantabil posted a Topline of Rs. 263.6 crores for year ending March.2010 and a profit after tax of Rs. 14.68 crores. Company’s revenues and profit have grown significantly over past four years as it added the Women and Kids wears as a part of its offerings.

Valuations

At the upper band of the offer price, the company is seeking a PE multiple of more than 15 while peers like Koutons is quoting at PE of 12 and Kewal Kiran at 14 times. The issue seems fully priced as compared to its peers. However, the booming markets may still put premium on listing. I am planning to put some token money to taste the waters.

New Baby in the world of Steel

I have nothing exciting to write about this new kid on the block. The company is promoted by Electrosteel Castings Limited , which is a leader in Cast Iron pipes and Ductile Iron Spun pipes and I could find this as the only silver lining.

The company is in the process of setting up 2.2 MTPA Steel plant in the state of Jharkhand. It does not have any operating history. It will take a couple of years for the operating performance of the company to unfold and hence I would prefer to avoid the IPO. Only those investor who would like to take a long term view may think of applying at the lower band of the offer price.

Full Entertainment for Investors too !

Eros International IPO is offering shares @ 158-175 to raise up to Rs. 350 crore. A quick look at the positives and concerns.

Positives

1. Eros has a content library of over 1000 films and the company is yet to milk these effectively.

2. Diversity and segmentation of revenue- Eros derives revenue from Theatre release of new movies, sale to channels and music rights. Further a large portion of revenue is generated from overseas releases which ensures good geographical segmentation.

Concerns

1. Failure to provide super hit movies in future may turn the tide.

2. Not competent to make its own movies. The only production “Aa dekhen Zara” was a big flop.

On valuations the issue is priced at a PE of 21 on the higher end which is in line with valuation enjoyed by peers such as UTV software. With good going of “Dabang” and few good movies lined up for release the stock is all set to provide full entertainment to investors on the stock markets too . I am applying with a view to book listing gains.

This IPO may not be comparable to the likes of Everonn Edu which has given 400% return since its listing and it may not repeat the euphoria created by Educomp solution since its listing, but Career Point info systems definitely offer a opportunity to participate in a public offering of a new class of business – Education –Tutorials.

At the same time it also presents a potential risk as we do not have a comparable listed entity. The company needs no introduction as neither Kota as a hub for engineering tutorials. It provides tutorial services to high school and post high school students for various competitive entrance examinations including AIEEE,IIT-JEE, PMT and PDT through its 17 company operated and 16 Franchisee centres.

Positives

1. Being first issue of its kind of a education tutorial company, the IPO will set precedent for the other companies in this sector who aspire to get listed.

2. The education tutorial has been a highly un-organized industry and the listing of career point will enable people to have shareholding in such companies as education is considered to be a highly lucrative and promising industry.

3. Career point has earned a good brand name in its field. In education sector, reputation matters a lot and the company is poised to reap benefit of the same.

4. Presence across 13 states provides Career point an edge to target the wide consumer base of students preparing for the engineering exams.

5. The company plans to foray aggressively into ECAMS (Education consultancy and management services) and is exploring to extend it to private-public schools as well as government school.

6. The company also runs Global public school and Career point University.

Concerns

1. Education industry witness rapid changes and with ever increasing competition it would a challenge for the company to maintain its competitive edge.

2. The company has a history of negative Cash flows from Operating and Investing activities on account of its rapid expansion plans.

3. A search and seizure operation was carried at company premises and premises of the promoters last year by income tax department. One of the promoter had accepted unaccounted income of the company, promoters and relatives of INR 60 Million. There were series of notices served on the company by other departments based on above . The management needs to show more honesty and transparency and better standards of corporate governance as they serve the industry which runs on credibility.

4. The training center at Kota contributes more than 58% of revenue and hence any disruption of any sort at Kota may lead to significant loss of revenue for the company.

Financials & Valuations

Career point reported a Top-line of Rs. 65.8 crore for year ending 31-Mar-2010, up 37% against last year. Net profit stood at 17.8 Crores, up 18.7% against last year. As per a recent interview, the management has shown confidence of a growth rate of 25% .

The EPS for year ending Mar-10 stood at 14.71 and the Return of net worth stood at 14.6%. At the upper price band of 310, the PE works out to be 28 which is aggressive considering Everonn trading at current PE of around 21 and Educomp at a PE of 25. The stock is quoting at a premium of Rs . 90 in Grey market .

I am considering applying for the IPO and if the stocks lists at a good premium, I plan to book listing gains.